Recommended Posts

Why believe any of them? Galbraith tells the story of the Harvard Economics Society, distinguished professors who early in 1929 made frequent forecasts that the American economy was headed for recession, and then, because stocks continued to grow, "confessed error" and changed their minds, just in time for the crash.

Don't panic: Galbraith called that command "preventive incantation". He writes: "Preventive incantation required that as many important people as possible repeat as firmly as they could that it [general recession] wouldn't happen. This they did. They explained how the stock market was merely the froth and that the real substance of economic life rested in production, employment and spending, all of which would remain unaffected. No one knew for sure that this was so. As an instrument of economic policy, incantation does not permit of minor doubts or scruples." The division was comforting. The speculators jumping to their deaths from Manhattan skyscrapers (according to Galbraith, only 11 did so) came from a different world than the labourers in Pittsburgh's steel mills, and wouldn't harm that world - an idea that persists when commentators talk of the "real" or "underlying" economy. In Newcastle, that talk won't wash.

Share this post

Link to post

Share on other sites

A woman in Newcastle told me: "The interesting thing was to hear us all trying to work it out. 'So we borrow our mortgages off them, and then they sell on our debt, and then they can't get any more money because banks don't like those kinds of debts any more. Is that it?' We went on for hours."

Share this post

Link to post

Share on other sites

Why believe any of them? Galbraith tells the story of the Harvard Economics Society, distinguished professors who early in 1929 made frequent forecasts that the American economy was headed for recession, and then, because stocks continued to grow, "confessed error" and changed their minds, just in time for the crash.

Don't panic: Galbraith called that command "preventive incantation". He writes: "Preventive incantation required that as many important people as possible repeat as firmly as they could that it [general recession] wouldn't happen. This they did. They explained how the stock market was merely the froth and that the real substance of economic life rested in production, employment and spending, all of which would remain unaffected. No one knew for sure that this was so. As an instrument of economic policy, incantation does not permit of minor doubts or scruples." The division was comforting. The speculators jumping to their deaths from Manhattan skyscrapers (according to Galbraith, only 11 did so) came from a different world than the labourers in Pittsburgh's steel mills, and wouldn't harm that world - an idea that persists when commentators talk of the "real" or "underlying" economy. In Newcastle, that talk won't wash.

FABULOUS!!! You have to be a cretin to not have seen all this coming years ago........... It was a system built of cards, on sand -- and of dubious honesty. A pathetic attempt at a huge pyramid selling scam. And that's what the UK [and US, Spanish etc] "property markets" have become: A pathetic attempt at a huge pyramid selling scam.

Share this post

Link to post

Share on other sites

A woman in Newcastle told me: "The interesting thing was to hear us all trying to work it out. 'So we borrow our mortgages off them, and then they sell on our debt, and then they can't get any more money because banks don't like those kinds of debts any more. Is that it?' We went on for hours.

Share this post

Link to post

Share on other sites

The banks tell their punters they have money to lend, when, until those punters sign the form, they have absolutely nothing.

It's fraud, Eric Pebble. Every single bank loan and mortgage ever agreed to in the british isles is based on a very simple to pick apart fraud. Pretty simple even for your good self to understand, although you would like to make it all the fault of people who lie to access this process.

Northern rock are still offering 125% mortgages. They can do so precisely because they never, ever lend anything of their own.

Still, you keep up the party line there mate. Push the agenda in big letters and people will believe it.

Share this post

Link to post

Share on other sites

What Northern Rock proved to Newcastle is that there are not parallel economies, the frothy and the real. The bank depended for success on cheap money, rising house prices and the successful performance of the City of London; the same could be said of Britain. Preventive incantation has had a shock.

Share this post

Link to post

Share on other sites

I just re-read Galbraith's fantastic book on the 1929 crash this weekend. I'd recommend it to anyone who's a regular visitor to HPC. There are so many parallels that can be draw between the risky behaviour in the stock market in 1928-29, and the highly leveraged BTL phenomenon the UK has seen in the last few years. Let's just hope the UK's inevitable day of reckoning doesn't drag the whole economy into a similar 10 year depression, along with the 25% unemployment that America enjoyed in the mid 30's!!!